It’s Easy to Become a Wage-and-Hour Criminal. Here’s How Not To.

Many small businesses are unaware that docking an employee’s pay is unlawful in certain states, such as California, Connecticut, Iowa, Massachusetts, Minnesota, New Jersey and New York.

“These states have laws specifically prohibiting deductions from employees’ wages in the event of cash shortages, loss of equipment, misconduct, the destruction of company property and various other occurrences,” Keith Reinfeld says. “For instance, a grocery store cannot deduct $10 from the paycheck of a cashier who could not account for a $10 cash shortage at the end of his or her shift.”

As a result, small businesses are often faced with lawsuits for improper wage deductions.

“Small businesses often have a difficult time defending these wage-and-hour lawsuits because they have failed to maintain the time and payroll records necessary to challenge such claims,” Reinfeld says.

Reinfeld suggests that the best way small-business owners can protect themselves is by maintaining complete pay roll and time records for all employees for at least three years.